India’s Intra-industry Trade: Implication on Vertical Specialization, Environment and Employment
India’s IIT has grown in importance after the adoption of trade liberalization measures in 1991. This chapter tries to assess India’s IIT by considering different aspects, like vertical specialization associated with IIT, the impact of IIT on environment and employment. The analysis focuses on India’s bilateral IIT with the USA, EU (27) and China during 2001–02 to 2015–16. The study finds that share of IIT in total trade between India and its trade partners is increasing. India’s IIT is dominated by the products which are differentiated vertically (VIIT). This might be an indication of vertical specialization and the country’s increasing participation in global production network. Results also reveal low-quality VIIT dominates in trade with the USA and EU (27). In trade with China, both low-quality and high-quality VIITs are found to be equally important, though the share of low-quality varieties is rising. Regarding environmental impact of IIT, values of PTOT are greater than one in most of the cases implying India being a pollution haven. In trade with China, pollution intensity of export component of IIT has shown an upward trend over the study period. Regarding employment generation, IIT has a positive impact on the labour market, particularly in trade with EU (27) and China. As India is found to be specializing mostly in the varieties of lower quality which are unskilled labour-intensive, promotion of IIT could lead to an inclusive growth in an unskilled labour-surplus economy like India.
KeywordsIntra-industry trade Vertical IIT Horizontal IIT Input–output framework Grubel–Lloyd index Pollution haven Pollution terms of trade Labour employment India’s foreign trade
JEL ClassificationF18 Q560
- Aggarwal, S., & Chakraborty, D. (2017). Determinants of India’s bilateral intra-industry trade over 2001–15: Empirical Results. MPRA Paper No. 78020. Retrieved Dec 18, 2017 from https://mpra.ub.uni-muenchen.de/78020/.
- Aralus, S. B., & Hoehn, J. P. (2010). Inter-industry trade and the environment: Is there a selection effect? Agricultural and Applied Economics Association, Paper no. 61367.Google Scholar
- Bagchi, S. (2018). Is intra-industry trade gainful? evidence from manufacturing industries of India. In N. Siddharthan & K. Narayanan (Eds.), Globalisation of technology: India studies in business and economics. Singapore: Springer.Google Scholar
- Balassa, B. (1966). Tariff reductions and trade in manufactures among industrial countries. American Economic Review, 56(3), 466–473.Google Scholar
- Burange, L. G., & Chaddha, S. J. (2008). Growth in India’s intra-industry trade. Working Paper UDE24/2/2008, University of Mumbai.Google Scholar
- Das, R. U., & Dubey, J. D. (2014). Mechanics of intra-industry trade and FTA: Implications for India in RCEP. RIS-Discussion Paper no. 190.Google Scholar
- Dimaranan, B. V., (Ed.). (2006). Global Trade, Assistance, and Production: The GTAP 6 Data Base. Center for Global Trade Analysis, Purdue University.Google Scholar
- Dixit, A. K., & Stiglitz, J. E. (1977). Monopolistic competition and optimum product diversity. American Economic Review, 67(3), 297–308.Google Scholar
- Eshleman, T., & Kotcherlakota, V. (2010). EU-India intra-industry trade (2000–2008). Indian Journal of Economics and Business, 9(2), 423–433.Google Scholar
- Falvey, R. E., & Kierzkowski, H. (1987). Product quality, intra-industry trade and (im)perfect competition. In H. Kierzkowski (Ed.), Protection and competition in international trade. Oxford: Basil Blackwell.Google Scholar
- Fontagné L., Freudenberg, M., & Gaulier, G. (2005). Disentangling horizontal and vertical intra-industry trade. CEPII, Working Paper no. 2005-10.Google Scholar
- Gabszewicz, J., & Turrini, A. (1997). Workers skills, product quality and industry equilibrium. CORE, Discussion Paper no. 9755.Google Scholar
- Greenaway, D., & Milner, C. (1986). The economics of intra-industry trade. Oxford: Blackwell.Google Scholar
- Grossman, G., & Krueger, A. B. (1991). Environmental impacts of a North American free trade agreement. NBER Working Paper Series, No. 3914. Cambridge.Google Scholar
- Grubel, H. G., & Lloyd, P. J. (1975). Intra-industry trade: The theory and measurement of international trade in differentiated products. New York: Wiley.Google Scholar
- Helpman, E., & Krugman, P. R. (1985). Market structure and foreign trade: Increasing returns, imperfect competition, and the international economy. Cambridge Massachusetts: MIT Press.Google Scholar
- ImpactEcon. (2016). Labour data for the world based on GTAP. https://impactecon.com/.
- Kılavuz, E., Erkekoğlu, H., & Topcu, B. A. (2013). Globalizing production structure and intra-industry trade: The case of Turkey. International Journal of Economics and Financial Issues, 3(4), 799–812.Google Scholar
- Krugman, P. R. (1980). Scale economies, product differentiation, and the pattern of trade. American Economic Review, 70(5), 950–959.Google Scholar
- Łapinska, J. (2014). Determinants of intra-industry trade in agricultural and food products between Poland and EU countries. Law and Economics Review, 5(3), 159–172.Google Scholar
- Lee, H. L. (2002). An emissions data base for integrated assessment of climate change policy using GTAP for the year 1997. PURDUE, USA: Purdue University.Google Scholar
- Leitao, N. C., Dima, B., & Stefana, D. C. (2011). The environmental effects of intra industry trade. World Applied Sciences Journal, 12(3), 243–249.Google Scholar
- Leontief, W. (1953). Domestic production and foreign trade; The American capital position reexamined. Proceedings of the American Philosophical Society, 97(4), 332–349.Google Scholar
- Masali, A. D. (2016). Intra-industry trade in manufacturing supply chain: An empirical assessment of the India-ASEAN case. International Journal of Supply Chain Management, 5(2), 27–35.Google Scholar
- Miroudot, S., Lanz, R., & Ragoussis, A. (2009). Trade in intermediate goods and services. OECD Trade Policy Working Paper No. 93.Google Scholar
- Mukhopadhyay, K. (2006). Impact of Thailand’s trade with OECD countries on the environment. Asia Pacific Trade and Investment Review, UN ESCAP, 2(1), 25–45.Google Scholar
- Mukhopadhyay, K. (2009). Trade and environment: Implications for climate change. Decision, 36(3), 83–102.Google Scholar
- Mukhopadhyay, K. (2017) Economic assessment of global value chains—Case of China and India. Report submitted to the Chinese Academy of Science, Beijing, under the PIFI award Sponsored by the Government of China.Google Scholar
- Mukhopadhyay, K., & Chakraborty, D. (2006). Pollution Haven and factor endowment revisited: Evidence from India. Journal of Quantitative Economics, 18(1), 45–78.Google Scholar
- Narayanan, B. G., Aguiar, A., & McDougall, R. (Eds.). (2015). Global trade, assistance, and production: The GTAP 9 Data Base. Center for Global Trade Analysis, Purdue University.Google Scholar
- OECD. (2010). Measuring globalisation. OECD Economic Globalisation Indicators, Organization for Economic Co-Operation and Development, Paris. retrieved on Dec 25, 2017 from https://unstats.un.org/unsd/EconStatKB/KnowledgebaseArticle10422.aspx .
- OECD. (2017). Bilateral trade in goods by industry and end-use category. Retrieved on Dec 26, 2017 from https://www.oecd.org/trade/bilateraltradeingoodsbyindustryandend-usecategory.htm.
- OECD, WTO and World Bank Group. (2014), Global value chains: Challenges, opportunities, and implications for policy. Report prepared for submission to the G20 Trade Ministers Meeting Sydney, Australia. Retrieved on Dec 25, 2017 from https://www.oecd.org/tad/gvc_report_g20_july_2014.pdf.
- Roy, J. (2015). On the environmental consequences of intra-industry trade. Working Papers No. 15-01, Department of Economics, Appalachian State University, Boone, NC.Google Scholar
- Sarma A., & Hoehn, J. (2010). Intra-industry trade and the environment: Is there a selection effect? Paper presented at the Agricultural & Applied Economics Association 2010, AAEA, CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 25-27, 2010.Google Scholar
- Tewari, M., Veeramani, C., & Singh, M. (2015). The potential for involving India in regional production networks: Analyzing vertically specialized trade patterns between India and ASEAN. ICRIER Working Paper, No. 292. Retrieved on Dec 27, 2017 from http://icrier.org/pdf/Working_Paper_292.pdf.
- Turkcan, K., & Ates, A. (2010). Structure and determinants of intra-industry trade in the U.S. auto-industry. Journal of International and Global Economic Studies, 2(2), 15–46.Google Scholar
- United Nations, UN Comtrade. Retrieved on http://comtrade.un.org/.
- Veeramani, C. (1999). Intra-industry trade under economic liberalization: The case of Indian capital goods industries. Journal of the Indian School of Political Economy, 11(3), 455–473.Google Scholar
- Veeramani, C. (2001). India’s intra-industry trade under economic liberalization: Trends and country specific factors. Working Paper No. 313, Centre for Development Studies, Thiruvananthapuram.Google Scholar
- Veeramani, C. (2003). Liberalization: Industry-specific factors and intra-industry trade in India. Working Paper No. 97, Indian Council for Research on International Economic Relations (ICRIER).Google Scholar
- Verdoorn, P. J. (1960). The intra-block trade of Benelux. In E. A. G. Rabinson (Ed.), Economic consequences of the size of nations. London: Macmillan.Google Scholar
- World Bank, World Integrated Trade Solutions (WITS). Retrieved from https://wits.worldbank.org.